DraftKings CEO reveals what's next after New York bill passes
Don't expect any DraftKings-FanDuel merger
Jason Robins, CEO of daily fantasy sports site DraftKings, got the good news at 2:14 a.m. on a Friday morning. At the literal 11th hour, the end of the final day of its June legislative session, the New York state legislature passed a bill to legalize and protect daily fantasy sports.
The bill does not guarantee, but makes it very likely, that private tech companies DraftKings and FanDuel, the market leaders in an exploding industry, will be able to hit restart in the state in time for the new NFL season, their most crucial time of year for new signups and big revenue from entry fees. The companies entered into a settlement in March with New York Attorney General Eric Schneiderman that barred them from taking paid entries in New York, their No. 1 biggest state by customer base.
Shutting down in New York meant “a lot of lost revenue for us, for sure,” Robins told Yahoo Finance in a visit to our New York offices on Monday. “We have a really strong baseball presence in New York, so it was a tough time of year to be off. But obviously it’s more important to be back for football. I’m hopeful that if the governor chooses to sign the bill into law, we’ll be able to get back in time for football season.”
“Hopeful,” but not certain. New York Gov. Andrew Cuomo next has to sign the bill—or he can veto, or do nothing. If he signs or does nothing, it becomes a law. He is not expected to veto it, but his office has not commented on his plans. He has 10 days to take action from the time it is delivered to him, and it is unclear when that will happen. “I hope that they understand there’s more urgency behind it,” says Robins.
There is urgency for DraftKings and other daily fantasy operators because football is the most popular fantasy sport by far, and provides the lion’s share of entry fees and thus revenue. Last fall, on the first day of the 2015-2016 NFL season, DraftKings got 200,000 new user sign-ups in a single day. In other words, being open for business in time for football is crucial.
But Cuomo and other lawmakers may not care about that. And additional legal hurdles could still pop up in the state: New Yorkers could bring new lawsuits on the basis of New York penal law (which deems contests unlawful if they involve a meaningful element of chance) or on the basis of the New York State Constitution (which prohibits all forms of gambling; the new bill labels daily fantasy sports as a skill-based game, but that label is not controlling).
Moreover, Schneiderman, who has arguably been the most vociferous in his attack on these companies of any state official, is still able to pursue them on claims of false advertising, which he reiterated in an official statement issued after the bill passed: “The Legislature has amended the law to legalize daily fantasy sports contests, a law that will be my job to enforce and defend. We will nevertheless continue to pursue our claims that DraftKings and FanDuel previously engaged in false advertising and consumer fraud.”
Still, the passing of the bill is a victory for the companies and the consumers in this burgeoning industry, and for the state of New York, which will get a cut of the revenue these companies generate, through taxes and licensing fees the operators now have to pay.
New York had long been seen as the domino that other states would follow. (California passed a daily fantasy sports bill back in January, and still all eyes remained on New York.) After boisterous protest rallies, promoted tweets from both sides of the issue, and a letter-writing campaign in which some 100,000 users of these platforms wrote to lawmakers, expect the drama in New York to die down for a while.
It was drama that Robins says surprised him. “I grew up playing fantasy sports, and if you ever told me it would be the source of such national debate, I would have said you’re crazy,” he says. “But I think a lot of it comes down to competing forces. If you look at the primary opposition we faced in New York, it was from people that viewed it as competitive or, for whatever reason, they wanted a piece of it, and I don’t know that that was necessarily unique to New York.”
Indeed, the vitriol and clamor over daily fantasy sports is equally loud from both sides—there are many that see these companies basically as gambling operators, and they have delighted in seeing them face an onslaught of legal scrutiny. Robins says those people “don’t understand” the business. “They’ve seen the way the media has characterized it, they way we’ve been called names and people have said, ‘These guys are bad.’ And if you don’t play, and you’re not into it, you’re just going to believe that. So I think there are a lot of people out there with an impression that we’re going to have to work hard to change,” he says.
To change that impression, expect DraftKings to shift its marketing plan. Last football season, the company spent more than $150 million on television ads, briefly becoming, along with rival FanDuel, the top two highest-spending advertisers on TV. That alienated many potential users, who found the onslaught intrusive, and while it did raise awareness, the ad flood may also have been to blame for attracting negative attention from lawmakers who had not previously heard of the companies or the industry. Now DraftKings has a new CMO, Janet Holian, who acknowledged in a previous interview with Yahoo Finance, “We could have reduced the ads a bit.”
The prolonged battle in New York also brought about reports that DraftKings and FanDuel, which enjoy a combined 95% market share of the $2 billion daily fantasy industry, were in talks to merge. A merger would make sense for the private “unicorn” startups, which have spent big on marketing and legal fees and could save a lot of that budget by combining. But there’s one catch, sources have said: Who would be CEO of the combined company? Neither Robins, who co-founded DraftKings in Boston in 2012, nor FanDuel CEO Nigel Eccles, who co-founded FanDuel originally in Scotland in 2009, is interested in relinquishing the top leadership role.
Last week, when merger rumors swirled, both companies declined to comment. Some have speculated that the rumors only leaked as a political strategy to help spur the likelihood of a bill. And now that a bill has passed, a merger looks extremely unlikely, as it did all along.
About the rumors, Robins says: “I’ve been asked about it pretty much at least once every month or so for the last two years. And I’ve said the same thing every time I’ve been asked about it: I think it’s really interesting, I think it has the potential to add value for shareholders. But you know, it would take both sides sitting down, spending a lot of time and effort, and that’s a big commitment. I think you’re right, for that reason, to be skeptical.”
Watch the above video for the full interview with Jason Robins, part of our sports business series Sportsbook.
Disclaimer: Yahoo, parent company of Yahoo Finance, launched its own daily fantasy sports product last year.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.
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